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05.08.2005 20:03:00
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Cytec Announces Second Quarter Results; Full Year Outlook Updated
Net earnings for the comparable period of 2004 were $31.2 millionor $0.77 per diluted share, on net sales of $422 million. Included inthe quarter was a pre-tax charge of $6.1 million (after-tax $4.8million or $0.12 per diluted share) in connection with the settlementof several environmental and toxic tort lawsuits and $2.4 million or$0.06 per diluted share for a favorable outcome of a tax audit inKorea. Excluding these special items, net earnings for the secondquarter of 2004 were $33.6 million or $0.83 per diluted share.
David Lilley, Chairman, President and Chief Executive Officersaid, "Overall, sales for the quarter were $813 million up 93%compared to the same quarter in 2004, due primarily to the acquisitionof the Surface Specialties business. The integration of SurfaceSpecialties into Cytec continues and is on schedule with theorganizational part of the integration completed, and synergies ontrack at an expected annualized rate of $35 million."
As a reminder, the segment results discussed below have beenrestated to reflect Cytec's new organization following the SurfaceSpecialties acquisition. A recap of the reorganization is as follows:
-- Cytec Performance Specialties - Includes the Water Treatment Chemicals, Mining Chemicals, Phosphine and Phosphorus Specialties, Polymer Additives and Specialty Additives product lines.
-- Cytec Surface Specialties - Includes the acquired Surface Specialties product lines plus Cytec's previously existing Coating Chemicals and Performance Chemicals product lines.
-- Cytec Specialty Materials is renamed Cytec Engineered Materials.
-- Building Block Chemicals remains unchanged.
Cytec Performance Specialties Sales increase 13%; OperatingEarnings increase to $17 million
Mr. Lilley continued, "In Cytec Performance Specialties, sellingprices were up 6%, selling volumes increased 4% and exchange added 3%to sales. The selling price increases were across all product lineshelping to compensate for much higher raw material and energy costs.Volumes were much improved in water treatment chemicals, miningchemicals and specialty additives where demand remained strong.However, the slowdown in industrial demand, principally in Europe andin Asia, experienced in the latter part of the first quartercontinued, and this impacted polymer additives which experienced lowervolumes.
The increase in operating earnings of $6.0 million was primarilydue to higher selling volumes and prices more than offsetting rawmaterial cost increases.
Cytec Surface Specialties Sales increase 430%; Operating Earningsincrease to $14 million
"The increase in Cytec Surface Specialties sales is principallydue to the acquisition of the Surface Specialties business whichaccounts for almost all of the sales increase. Our Cytec heritagecoating chemicals and performance chemicals product lines hadincreased selling prices of 2% and exchange rate changes added another2%. Volumes were down 1% on the heritage business with the slowdown indemand experienced in the latter part of the first quarter continuingin both Europe and North America for most of the quarter. Asia demandshowed some improvement in the latter part of the quarter. Similartrends were experienced in the acquired business.
"Operating earnings include a charge of $10.3 million ($7.5million after-tax or $0.16 per diluted share) relating to purchaseaccounting for finished goods inventory of the acquired businessrecorded at their fair value which exceeded normal manufacturingcosts. We anticipate this to be the final charge related to thewrite-up of acquired inventory. Excluding this amount, operatingearnings increased to $24.4 million reflecting the favorable impact ofthe acquisition.
Cytec Engineered Materials Sales increase 10%; Operating Earningsdecline slightly to $25 million
"Cytec Engineered Materials sales volumes increased 8% and sellingprices were up 2%. The volume increases were primarily due to largecommercial aircraft and rotorcraft customers as the aircraftmanufacturers increase their build rates.
The favorable effect on operating earnings from the higher saleswas offset by higher costs in our two European manufacturing sitesplus higher selling and research costs as we increased our efforts tomeet the numerous opportunities for the future.
Building Block Chemicals Sales increase 44%; Operating Earningsincrease to $7 million
"In Building Block Chemicals, selling prices increased 19% whichwas below the increase in raw material costs. Propylene, the key rawmaterial for acrylonitrile, started off in the quarter with very highpurchase prices but those costs decreased starting in May. On averagefor the quarter, propylene costs were still up almost $0.06 per poundwhen compared to the prior year quarter. Selling volumes were up 24%primarily due to higher acrylonitrile volumes. In the second quarterof last year the plant was shut down for about a month for scheduledmaintenance work resulting in reduced sales. Exchange rate changesincreased sales 1%.
"Operating earnings improved primarily due to the higher sellingvolumes."
Earnings in Associated Companies
James P. Cronin, Executive Vice President and Chief FinancialOfficer commented, "On May 31, 2005, we completed the sale of our 50%interest in CYRO Industries (CYRO) to our partner, Degussa, for cashconsideration of $100 million subject to final working capitaladjustments. The proceeds essentially covered the book value of ourinvestment in CYRO. The net after tax proceeds were used to pay downdebt related to our acquisition of Surface Specialties. Through thedate of closing of the sale, CYRO's sales and earnings were upcompared to the full quarter year ago period primarily due toincreased volume and selling prices."
Corporate and Unallocated
Mr. Cronin added, "During the quarter, we recorded a pre-taxcharge in administrative expense for $2.4 million ($1.8 millionafter-tax) related to an increase in our accrual for a certainlitigation matter. The total accrual is based on the now anticipatedprobable settlement value of $2.7 million. Partially offsetting thiswas a reduction in expenses relating to the mark to market accountingfor our stock based incentive compensation reflecting a decrease inour stock price in the quarter."
Also, during the quarter the Company recorded a pre-tax loss inother income (expense), net of $28.0 million ($17.7 million after-taxor $0.38 per diluted share) pertaining to interest rate derivativetransactions related to the acquisition of the Surface Specialtiesbusiness. These derivatives were entered into to partially hedge theimpact of potential increases in interest rates related to the SurfaceSpecialties acquisition and require mark to market accounting. Hence,any changes to the fair value are recorded as a gain or loss in theperiod incurred. The interest rate derivatives are still outstandingpending the anticipated refinancing of our 364 day credit facilitylater this year.
Interest Expense
Mr. Cronin added, "Interest expense is significantly higher thanthe prior year quarter primarily due to the higher levels of debtoutstanding associated with the Surface Specialties acquisition, aswell as the charge related to the MOPPRS redemption."
"In order to take advantage of current interest rates during thequarter, we redeemed our $120 million MOPPRS at the optionalredemption price of approximately $141 million including $21 millionfor the value of redeeming the securities prior to their finalmaturity. In addition, we recognized a charge of $1 million fromamounts related to the unamortized put premium and rate lockagreements for these securities. Accordingly, interest expense for thequarter includes a total pre-tax charge of $22.0 million related tothis transaction."
Income Tax Expense
Mr. Cronin continued, "The Company's effective tax rate forcontinuing operations for the quarter was favorably impacted by areduction in income tax expense of $9.6 million ($0.20 per dilutedshare) related to a partial resolution of a tax audit in Norway withrespect to prior year tax returns. The remaining liability pertainingto the Norway tax audits is 84 million Norwegian krone or $12.8million. In prior years, as this matter developed, the Company accruedfor the potential unfavorable outcome of this dispute and has retainedtax counsel to assist in the defense of the remaining Norwegianassessment. We believe the remaining issues will likely be litigatedgiven Cytec's vigorous defense in protesting the additional assessmentof tax. Also favorably impacting the rate were the losses incurred inthe U.S. on the interest rate derivatives and the MOPPRS redemption.The tax benefit on these losses is recorded at 36.5%. Excluding theseitems, the Company's underlying effective tax rate for the quarterwould have been 27% which compares to 23% in the same period of lastyear. As expected, this increase is primarily attributable torelatively more earnings from acquired Surface Specialties entities incountries with higher tax rates than in countries for heritage Cytec."
Earnings from Discontinued Operations
Discontinued operations represent the net after tax results of theSurface Specialties' Amino Resins product line (SSAR). In June 2005 weannounced a definitive agreement to sell SSAR to affiliates of INEOSGroup Limited for net cash consideration of EUR 64 million ($78million at 1.22$/EUR) subject to customary closing adjustments. Thepending sale was made pursuant to our commitments under orders by theFTC and the EC to divest SSAR following our acquisition of the SurfaceSpecialties business earlier this year. We expect to complete thistransaction at the end of August, 2005.
Cash Flow
Mr. Cronin continued, "For the quarter, trade accounts receivableincreased due to the higher level of sales and an increase in daysoutstanding of 3. This is to be expected as the acquired SurfaceSpecialties business has a higher mix of international business wherepayment terms are typically longer. Inventory decreased as certain ofour plants were run at reduced rates part of the quarter. Capitalspending for the quarter was $30 million, which includes spending forcapacity expansions principally in our mining chemicals and carbonfiber product lines."
2005 Outlook
Mr. Lilley commented further, "We move into the second half of2005 with the organizational aspects of the integration of SurfaceSpecialties into Cytec essentially completed. We are now re-focusingthe efforts of Surface Specialties on delighting our customers throughtechnology and enhanced technical service, and initiating operationalexcellence programs in manufacturing and supply chain operations wherewe now believe there are clearly many opportunities for improvement.The emphasis on selling price initiatives across Cytec is continuingto show results but with oil and natural gas prices remaining high, weexpect little relief from high raw material and energy costs. Theslowdown in market demand in our Performance Specialties and SurfaceSpecialties segments experienced in the latter part of the firstquarter continued into the second quarter. We did see a slight pickupin demand towards the end of the second quarter, particularly in Asia,but Europe remains weak. Our aerospace markets continue to improve asbuild rates for large commercial aircraft and rotorcraft increase.
The US Dollar has strengthened versus the euro and the euro is nowa major currency for Cytec after the acquisition of SurfaceSpecialties. Assuming all other factors remain the same, overall a onecent change in the dollar to euro exchange ratio impacts Cytec byabout $1 million with about half of that in Surface Specialties. Astrengthening dollar has a negative impact on our Surface Specialties,Performance Specialties and Building Block Chemicals segments and apositive impact on the Engineered Materials segment. Our previous fullyear outlook assumed a dollar to euro ratio of $1.31 and we nowproject that to be $1.25.
The following specific details for the full year excludes thepurchase accounting charges for in-process research and development inthe first quarter and inventory step-up in the first and secondquarters, the environmental dispute settlement in the first quarter,the charge in the second quarter for the anticipated settlement of acertain litigation matter, the acquisition related net hedge gains orlosses including unrealized gains and losses through the date thehedges remain outstanding, the charges for the redemption of theMOPPRS in the second quarter, the actual and forecasted integrationand severance costs, the tax benefits from the closure of prior yearaudits in the US in the first quarter and the partial resolution ofthe Norwegian prior year tax audits in the second quarter.
"In Cytec Performance Specialties, our guidance for sales andoperating earnings is unchanged. We expect sales to increase 5%-10%with about two-thirds due to selling price increases and the remaindersplit between volume and exchange. Most of the volume increase is inthe mining chemicals product line as demand for copper and aluminaremains strong. Operating earnings are forecast to increase to a rangeof $56-$58 million due to the selling price increases as well asreduced operating costs offsetting raw material cost increases.
"In Cytec Surface Specialties, we see some additional weakness inEurope with Asia improving more slowly than anticipated but theselling price increases are holding in most but not all areas. We seedemand in North America being flat overall with sales related to theautomotive sector down. As mentioned earlier, the US dollar has alsostrengthened versus the euro and this has a negative impact on SurfaceSpecialties. So, as a result of our expectation for weak volumes forthe second half of 2005 and the impact of unfavorable exchange ratechanges, we are updating our forecast for full year sales to be in arange of $1.35 billion to $1.45 billion, down from a range of $1.40billion to $1.50 billion. The organizational part of the integrationis complete so our sales force can focus its energies on our customersand markets and while difficult to quantify we do expect this to havea favorable impact going forward. In addition, we have begun a majoreffort to ensure that costs are in line with demand levels. The impacton earnings of the stronger dollar is about $2 million unfavorable.Our decision to reduce inventories in line with business requirementsalso has a negative impact on earnings. In addition, we havesubstantially completed the asset valuations associated with theacquisition and this has increased depreciation expense by about $4million on an annualized basis. So taking into account the above, weare updating our operating earnings forecast for this segment to arange of $85-$90 million, down from a range of $95-$100 million. Wenow see clearly a number of opportunities to improve the operations ofthe acquired business on top of the synergies we will realize but theimpact of these improvements will only occur in the latter part of theyear and in 2006.
"Cytec Engineered Materials sales are now forecast to increase ina range of 10%-13% up from a range of 8%-12% due to build rateincreases in military and commercial aircraft, and the benefits ofhigher selling prices plus new business. We do expect to seeadditional leverage from the higher sales in the second half of 2005and we are making progress in correcting our manufacturing issues inEurope. As a result, we are improving our operating earnings forecastto a range of $100-$105 million up from $95-$100 million.
"Building Block Chemical sales forecast for an increase of 12%-15%is down from our previous forecast of 15%-20%, but operating earningsare now expected to increase to about $25 million from our previousforecast of about $22 million due to improved acrylonitrile marginspreads. Propylene, the key raw material for acrylonitrile, trendeddown in the middle of the quarter but is forecasted to increase againas the year progresses.
"The Corporate and Unallocated forecast is now projected to beabout a loss of $7 million improved from our previous forecast of aloss of $10 million primarily due to reduced expenses related to ourstock based incentive compensation. Equity earnings for the full yearwill essentially remain at the six month amount of $6.6 million, dueto the sale of our share of CYRO in the quarter which is above ourprevious forecast of $2.6 million. Our remaining joint venture is notmaterial in terms of earnings. Based on a reduced forecast of the euroas well as euro interest rates together with a planned delay in ourrefinancing of the 364 day credit facility, interest expense, net willnow be in a range of $58-$60 million, down from our previous estimateof $63-$66 million. Our estimated annual underlying effective tax ratefor ongoing operations remains at 27%."
"In terms of cash flow, we are reinvigorating our efforts toreduce working capital particularly in the area of inventory which webelieve will be a significant source of cash for us from June 30, 2005through year end. Capital spending is now forecast to be about $100million, down from our previous estimate of $120 million. The decreasein anticipated capital spending is primarily in the SurfaceSpecialties segment and reflects our recent completion of a detailedreview of previously proposed spending."
In closing Mr. Lilley commented, "Based on all of the above, ourforecast of overall annual sales is now in a range of $2.9 to $3.0billion, down from our previous forecast of $3.0 to $3.1 billion. Ourforecast for full year diluted earnings per share is unchanged at$3.30 to $3.45.
"The people at Cytec have been through uncertain times before andour track record is solid. With our new colleagues in SurfaceSpecialties, we will stick with our winning formula for increasingshareholder value by focusing on what we can control."
Six Month Results
Net earnings for the six months ended June 30, 2005 were $5.3million or $0.12 per diluted share on sales of $1,377 million.Included in the six months ended June 30, 2005 were purchaseaccounting related charges of $20.8 million pre-tax (after-tax $15.2million, or $0.33 per diluted share), related to acquired inventoriesfrom Surface Specialties being recorded at fair value which exceedednormal manufacturing cost, a charge of $37.0 million or $0.82 perdiluted share related to the write-off of in-process research anddevelopment costs of Surface Specialties, a pre-tax charge of $47.9million (after tax $30.4 million or $0.67 per diluted share) relatedto currency and interest rate derivative transactions associated withthe Surface Specialties acquisition, a pre-tax charge of $2.4 million(after-tax $1.8 million or $0.04 per diluted share) related to ananticipated settlement of a certain litigation matter, a pre-taxcharge of $22.0 million (after-tax $14.0 million or $0.31 per dilutedshare) related to the optional redemption of our Mandatory Par PutRemarketed Securities (MOPPRS) prior to their maturity, an income taxbenefit of $25.7, or $0.57 per diluted share, reflecting favorablepartial resolution of tax audits with respect to prior year taxreturns, employee redundancy costs of $1.3 million (after tax net $0.9million or $0.02 per diluted share), and a $4.4 million settlement toresolve a dispute over an environmental matter (after tax net $3.2million or $0.07 per diluted share). Excluding these special items,net earnings were $82.1 million or $1.81 on a diluted share basis.
Net earnings for the six months ended June 30, 2004 were $64.4million or $1.60 per diluted share on sales of $837 million. Thisincludes a net charge of $0.06 per diluted share representing anafter-tax charge of $4.8 million or $0.12 per diluted share inconnection with the settlement of several environmental and toxic tortlawsuits partially offset by a $2.4 million credit or $0.06 perdiluted share from a favorable outcome of an international tax audit.Excluding these special items net earnings were $66.8 million or $1.66per diluted share.
Investor Conference Call to be Held on August 8, 2005, 11:00 A.M.ET
Cytec will host their second quarter earnings release conferencecall on August 8, 2005 at 11:00 a.m. ET. The conference call will alsobe simultaneously webcast for all investors from Cytec's websitewww.cytec.com. Select the Investor Relations page to access the liveconference call.
A recording of the conference call may be accessed by telephonefrom 2:00 p.m. ET on August 8, 2005 until August 29, 2005 at 11:00p.m. ET by calling 888-203-1112 (U.S.) or 719-457-0820 (International)and entering access code 5747034. The conference call recording willalso be accessible on Cytec's website for 3 weeks after the conferencecall.
Use of Non-GAAP Measures
Management believes that net earnings and diluted earnings pershare before special items, which are non-GAAP measurements, aremeaningful to investors because they provide a view of the Companywith respect to ongoing operating results. Special items representsignificant charges or credits that are important to an understandingof the Company's overall operating results in the period presented.Such non-GAAP measurements are not recognized in accordance withgenerally accepted accounting principles (GAAP) and should not beviewed as an alternative to GAAP measures of performance. Areconciliation of GAAP measurements to non-GAAP can be found at theend of this release.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions containedherein, statements contained in this release may constitute"forward-looking statements" within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Achieving the resultsdescribed in these statements involves a number of risks,uncertainties and other factors that could cause actual results todiffer materially, as discussed in Cytec's filings with the Securitiesand Exchange Commission.
Corporate Profile
Cytec Industries is a specialty chemicals and materials technologycompany with pro forma sales in 2004, including the SurfaceSpecialties acquisition, of approximately $3.0 billion. Its growthstrategies are based on developing technologically advanced customersolutions for global markets including: aerospace, coatings, mining,plastics and water treatment.
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Millions of dollars, except share and per share amounts)
Three Months Six Months
Ended Ended
June 30, June 30,
2005 2004(1) 2005 2004(1)
---------------------------------
Net sales $813.4 $422.0 $1,377.3 $837.2
Manufacturing cost of sales 639.1 311.6 1,079.4 621.8
Selling and technical services 58.1 35.1 102.8 69.9
Research and process development 19.9 10.4 32.8 19.4
Administrative and general 26.6 14.7 44.5 27.9
Amortization of acquisition
intangibles 8.8 1.4 12.8 2.8
Write-off of acquired in-process
research and development - - 37.0 -
---------------------------------
Earnings from operations 60.9 48.9 68.0 95.5
Other income (expense), net (30.5) (8.7) (50.8) (7.7)
Equity in earnings of associated
companies 4.5 0.5 6.6 0.8
Interest expense, net 38.5 4.5 48.1 8.3
---------------------------------
Earnings (loss) from continuing
operations before income taxes (3.6) 36.3 (24.3) 80.3
Income tax provision (benefit) (15.3) 5.1 (29.0) 15.9
---------------------------------
Earnings from continuing operations 11.7 31.2 4.7 64.4
Earnings from discontinued operations
held for sale (net of income tax
provision of $0.0 and $0.7) 0.2 - 0.6 -
---------------------------------
Net earnings $ 11.9 $ 31.2 $ 5.3 $ 64.4
=================================
Basic net earnings per common share:
Earnings from continuing operations $ 0.26 $ 0.80 $ 0.11 $ 1.65
Earnings from discontinued operations
held for sale - - 0.01 -
---------------------------------
Net earnings $ 0.26 $ 0.80 $ 0.12 $ 1.65
Diluted net earnings per common
share:
Earnings from continuing operations $ 0.25 $ 0.77 $ 0.11 $ 1.60
Earnings from discontinued operations
held for sale - - 0.01 -
---------------------------------
Net earnings $ 0.25 $ 0.77 $ 0.12 $ 1.60
Dividends per common share $ 0.10 $ 0.10 $ 0.20 $ 0.20
Weighted average shares outstanding
(000 omitted)
Basic 46,162 39,221 44,141 39,160
Diluted 47,242 40,321 45,371 40,211
(1) 2004 results were restated to show the effect of FSP 106-2, which
was adopted retroactively during the third quarter of 2004, and
the retroactive application of the change from the last-in,
first-out ("LIFO") to the first-in, first-out ("FIFO") inventory
method which was adopted on January 1, 2005.
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED NET SALES AND EARNINGS FROM OPERATIONS BY BUSINESS
SEGMENT
(Millions of dollars)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
2005 2004 2005 2004
------- ------- ------- -------
Net sales
---------
Cytec Performance
Specialities
Sales to external
customers $185.8 $164.7 $359.2 $321.3
Intersegment
sales 1.7 0.8 2.8 2.1
Cytec Surface
Specialities 412.7 77.8 603.5 153.5
Cytec Engineered
Materials 141.0 128.1 268.8 248.4
Building Block
Chemicals
Sales to external
customers 73.9 51.4 145.8 114.0
Intersegment
sales 21.6 20.8 44.8 40.1
------ ------ ------ ------
Net sales from
segments 836.7 443.6 1,424.9 879.4
Elimination of
intersegment
revenue (23.3) (21.6) (47.6) (42.2)
------ ------ ------ ------
Total $813.4 $422.0 $1,377.3 $837.2
----------------------------------------------------------------------
% of % of % of % of
sales sales sales sales
----- ----- ----- -----
Earnings (loss)
from operations
---------------
Cytec Performance
Specialities $16.9 9% $10.9 7% $31.2 9% $20.3 6%
Cytec Surface
Specialities 14.1 3% 11.9 15% (20.4) -3% 20.5 13%
Cytec Engineered
Materials 25.3 18% 26.6 21% 48.7 18% 50.1 20%
Building Block
Chemicals 6.7 7% 2.0 3% 14.0 7% 8.9 6%
------ ------ ------ ------
Earnings from
segments 63.0 8% 51.4 12% 73.5 5% 99.8 11%
Corporate and
Unallocated (2.1) (2.5) (5.5) (4.3)
------ ------ ------ ------
Total $60.9 7% $48.9 12% $68.0 5% $95.5 11%
----------------------------------------------------------------------
CYTEC INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of dollars, except share and per share amounts)
June 30, December 31,
2005 2004(1)
------------------------
Assets
Current assets
Cash and cash equivalents $ 114.4 $ 323.8
Trade accounts receivable, less allowance
for doubtful accounts of $14.2 and $6.7
in 2005 and 2004, respectively 503.4 248.2
Due from related party 19.0 -
Other accounts receivable 75.5 54.1
Inventories 487.6 263.8
Deferred income taxes 27.9 23.3
Other current assets 23.4 29.3
Assets of discontinued operations held for
sale 96.7 -
------------------------
Total current assets 1,347.9 942.5
Investment in associated companies 10.7 85.5
Plants, equipment and facilities, at cost 2,052.8 1,627.2
Less: accumulated depreciation (957.3) (948.6)
------------------------
Net plant investment 1,095.5 678.6
Acquisition intangibles, net of accumulated
amortization of $36.3 and $23.1 in 2005 and
2004, respectively 515.8 66.8
Goodwill 1,010.3 342.4
Deferred income taxes - 54.6
Other assets 119.0 81.2
------------------------
Total assets $4,099.2 $2,251.6
========================
Liabilities
Current liabilities
Accounts payable $ 268.7 $ 138.1
Short-term borrowings 503.6 -
Current maturities of long-term debt 87.5 119.0
Accrued expenses 236.9 178.1
Income taxes payable 65.6 61.5
Liabilities of discontinued operations held
for sale 32.2 -
------------------------
Total current liabilities 1,194.5 496.7
Long-term debt 1,017.4 300.1
Pension and other postretirement benefit
liabilities 397.8 348.3
Deferred income taxes 73.7 -
Other noncurrent liabilities 237.8 174.5
Stockholders' equity
Common stock, $.01 par value per share,
150,000,000 shares authorized; issued
48,132,640 shares 0.5 0.5
Additional paid-in capital 234.1 122.8
Retained earnings 1,105.2 1,108.5
Accumulated other comprehensive income (loss):
Unearned compensation (3.0) (3.1)
Minimum pension liability (103.5) (108.5)
Unrealized net gains (losses) on cash flow
hedges 0.3 (0.5)
Accumulated translation adjustments 11.2 73.3
(95.0) (38.8)
Treasury stock, at cost, 2,121,674 shares in
2005 and 8,297,863 shares in 2004 (66.8) (261.0)
------------------------
Total stockholders' equity 1,178.0 932.0
------------------------
Total liabilities and stockholders' equity $4,099.2 $2,251.6
========================
(1) Balances at December 31, 2004 have been restated to show the
retroactive application of the change from the LIFO to the FIFO
inventory method which was adopted on January 1, 2005.
CYTEC INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of dollars)
Six Months
Ended June 30,
2005 2004(1)
-----------------
Cash flows provided by (used in) operating activities
Net earnings from continuing operations $ 4.7 $ 64.4
Non cash items included in net earnings from
continuing operations:
Dividends from associated companies greater than
(less than) earnings (4.3) 0.3
Depreciation 56.8 42.9
Amortization 14.4 5.6
Deferred income taxes (39.8) 15.5
Write-off of acquired in-process research and
development 37.0 -
Amortization of write-up to fair market value of
finished goods purchased in acquisition 20.8 -
Gains on sale of assets (1.2) (0.6)
Unrealized losses on derivative instruments 23.4 -
Other (1.2) (0.1)
Changes in operating assets and liabilities
(excluding effect of acquisitions):
Trade accounts receivable (20.1) (31.2)
Other receivables 14.0 (1.5)
Inventories (28.7) (21.5)
Other assets 5.7 (7.7)
Accounts payable 1.9 35.3
Accrued expenses (7.5) (11.7)
Income taxes payable (19.5) (8.1)
Other liabilities 1.3 (22.9)
-----------------
Net cash provided by (used in) operating activities
of continuing operations 57.7 58.7
Net cash provided by operating activities of
discontinued operations 0.8 -
-----------------
Net cash provided by (used in) operating activities 58.5 58.7
Cash flows (used in) investing activities
Additions to plants, equipment and facilities (47.5) (35.7)
Proceeds received on sale of assets 101.4 0.7
Acquisition of business, net of cash received (1,482.5) -
Advanced payment of acquisition-related contingent
consideration (26.5) -
Minority interest (0.9)
Advance payment received on land lease - 9.1
-----------------
Net cash used in investing activities (1,456.0) (25.9)
Cash flows provided by (used in) financing activities
Proceeds from the exercise of stock options and
warrants 10.5 11.5
Cash dividends (8.6) (7.8)
Proceeds from long-term debt 864.2 -
Payments on long-term debt (186.2) -
Change in short-term borrowings 521.6 (0.2)
Deferred financing costs (4.4) -
Purchase of treasury stock - (13.2)
Proceeds from termination of interest rate swap - 2.7
-----------------
Net cash provided by (used in) financing activities 1,197.1 (7.0)
Effect of currency rate changes on cash and cash
equivalents (9.0) (6.9)
-----------------
Increase (decrease) in cash and cash equivalents (209.4) 18.9
Cash and cash equivalents, beginning of period 323.8 251.1
-----------------
Cash and cash equivalents, end of period $114.4 $270.0
=================
(1) 2004 results were restated to show the effect of FSP 106-2, which
was adopted retroactively during the third quarter of 2004, and
the retroactive application of the change from the LIFO to the
FIFO inventory method which was adopted on January 1, 2005.
Cytec Industries Inc.
Reconciliation of GAAP and Non-GAAP Measures
Management believes that net earnings and diluted earnings pershare before special items, which are non-GAAP measurements, aremeaningful to investors because they provide a view of the Companywith respect to ongoing operating results. Special items representsignificant charges or credits that are important to an understandingof the Company's overall operating results in the periods presented.Such non-GAAP measurements are not recognized in accordance withgenerally accepted accounting principles (GAAP) and should not beviewed as an alternative to GAAP measures of performance.
Three Months Ended June 30, 2005
Net Diluted
Earnings EPS
-------- -------
GAAP Net Earnings $11.9 $0.25
- Purchase accounting fair value inventory over
manufacturing cost (after tax) 7.5 0.16
- Loss on interest rate derivative transactions
(after tax) 17.7 0.37
- Anticipated settlement of a certain litigation
matter (after tax) 1.8 0.04
- Optional redemption of Mandatory Par Put
Remarketed Securities (MOPPRS) prior to their
maturity (after tax) 14.0 0.30
- Income tax benefit reflecting the partial
resolution of a tax audit in Norway with respect
to prior years returns (9.6) (0.20)
-----------------
Non-GAAP Net Earnings $43.3 $0.92
=================
Six Months Ended June 30, 2005
Net Diluted
Earnings EPS
-------- -------
GAAP Net Earnings $5.3 $0.12
- Purchase accounting fair value inventory over
manufacturing cost (after tax) 15.2 0.33
- Loss on currency and interest rate derivative
transactions (after tax) 30.4 0.67
- Anticipated settlement of a certain litigation
matter (after tax) 1.8 0.04
- Optional redemption of Mandatory Par Put
Remarketed Securities (MOPPRS) prior to their
maturity (after tax) 14.0 0.31
- Income tax benefit reflecting favorable
developments on of tax audits with respect to
prior years returns (25.7) (0.57)
- Write off of in-process research and development
costs of Surface Specialties 37.0 0.82
- Employee redundancy costs (after tax) 0.9 0.02
- Settlement to resolve a dispute over an
environmental matter (after tax) 3.2 0.07
-----------------
Non-GAAP Net Earnings $82.1 $1.81
=================
Three Months Ended June 30, 2004
Net Diluted
Earnings EPS
-------- -------
GAAP Net Earnings $31.2 $0.77
- After tax litigation settlement charge 4.8 0.12
- Tax benefit related to tax audit in Korea (2.4) (0.06)
-----------------
Non GAAP Net Earnings $33.6 $0.83
=================
Six Months Ended June 30, 2004
Net Diluted
Earnings EPS
-------- -------
GAAP Net Earnings $64.4 $1.60
- After tax litigation settlement charge 4.8 0.12
- Tax benefit related to tax audit in Korea (2.4) (0.06)
-----------------
Non GAAP Net Earnings $66.8 $1.66
=================
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